Sarawak GE vs Bursa Malaysia FBM KLCI

Interesting analysis by Maybank Invetsment Bank research:

Sarawak elections: Back to the drawing board?

Potential pullback. Although Barisan Nasional (BN) secured more than two-thirds of the state assembly seats, the loss of 15 seats was higher than what political analysts had expected. In the May 2006 state elections where BN lost an additional 9.5% of seats, the KLCI was down 1.4% in the one week after the state elections. Price correction of Sarawak stocks was steeper, with politically linked CMS down 7.7% in one week. The trend may be similar over the next few days post the 9.9% additional seat loss by BN last Saturday. We view any upcoming weakness as an opportunity to accumulate the Sarawak construction stocks – our pick is Hock Seng Lee (TP: RM2.30).

Results disappointed? The BN led state government won 55 (77.5%) out of the total 71 seats in the 10th state elections held last Saturday. Chief Minister (CM) Taib’s party, PBB, retained 35 seats (unchanged) but the other two BN component parties had lost out with a total 15 seats falling to the opposition (versus 8 seats lost in the 2006 state elections) with DAP securing 12 seats (+6), and PKR 3 seats (+2). While the BN led government was expected to continue into the new term, the loss of 7 additional seats to the opposition was higher than the 2-3 additional seat loss which political analysts had predicted.

Market reaction the last time. The BN-led state government lost an additional 9.5% of total seats in the 2006 state elections. The broader KLCI was down 14 pts (-1.4%) in the one week after the state elections. At the end of the first month, the KLCI had lost 54 pts (-5.8%), due also to external weakness with the DJIA consolidating 1.8% during the same period. Sarawak stocks saw steeper price decline. Within one week of the May 2006 state elections, politically linked CMS had retraced 7.7%. Others like Encorp and Naim Holdings were down 7.9% and 2.4% respectively. Sarawak-based construction stock HSL retraced 5.1%.

The bright side. Commenting on last Saturday’s state elections, PM Najib said that the BN led government will “fulfill all its pledges to the people”. Besides leadership changes, we believe the promises include development and basic water, electricity and infrastructure needs. On that premise, we continue to expect construction activities to step up, supported by Sarawak’s Corridor of Renewal Energy (SCORE) development programme. Tenders for 27 road packages mostly leading to upcoming new hydro-electric dam projects worth at least RM2b closed last year. We expect construction awards to pick up soon.

13th GE: Uncertainty in timing? On whether BN’s two-thirds victory can be a gauge for the next general elections (GE), PM Najib was quoted as saying that “it is a yes and a no”. “Yes, because we can maintain our momentum to win after the previous victories in various other by-elections held and it has inspired us,” but “No, because it is just a state election and does not reflect the situation of the country as a whole”. Our interpretation of the PM’s remark is that the probability of a snap General Election this year has lowered somewhat compared with prior to the Sarawak State Election when the by-elections were swinging in BN’s favour.

by Maybank IB

Sarawak GE vs Bursa Malaysia FBM KLCI

Interesting analysis by Maybank Invetsment Bank research:

Sarawak elections: Back to the drawing board?

Potential pullback. Although Barisan Nasional (BN) secured more than two-thirds of the state assembly seats, the loss of 15 seats was higher than what political analysts had expected. In the May 2006 state elections where BN lost an additional 9.5% of seats, the KLCI was down 1.4% in the one week after the state elections. Price correction of Sarawak stocks was steeper, with politically linked CMS down 7.7% in one week. The trend may be similar over the next few days post the 9.9% additional seat loss by BN last Saturday. We view any upcoming weakness as an opportunity to accumulate the Sarawak construction stocks – our pick is Hock Seng Lee (TP: RM2.30).

Results disappointed? The BN led state government won 55 (77.5%) out of the total 71 seats in the 10th state elections held last Saturday. Chief Minister (CM) Taib’s party, PBB, retained 35 seats (unchanged) but the other two BN component parties had lost out with a total 15 seats falling to the opposition (versus 8 seats lost in the 2006 state elections) with DAP securing 12 seats (+6), and PKR 3 seats (+2). While the BN led government was expected to continue into the new term, the loss of 7 additional seats to the opposition was higher than the 2-3 additional seat loss which political analysts had predicted.

Market reaction the last time. The BN-led state government lost an additional 9.5% of total seats in the 2006 state elections. The broader KLCI was down 14 pts (-1.4%) in the one week after the state elections. At the end of the first month, the KLCI had lost 54 pts (-5.8%), due also to external weakness with the DJIA consolidating 1.8% during the same period. Sarawak stocks saw steeper price decline. Within one week of the May 2006 state elections, politically linked CMS had retraced 7.7%. Others like Encorp and Naim Holdings were down 7.9% and 2.4% respectively. Sarawak-based construction stock HSL retraced 5.1%.

The bright side. Commenting on last Saturday’s state elections, PM Najib said that the BN led government will “fulfill all its pledges to the people”. Besides leadership changes, we believe the promises include development and basic water, electricity and infrastructure needs. On that premise, we continue to expect construction activities to step up, supported by Sarawak’s Corridor of Renewal Energy (SCORE) development programme. Tenders for 27 road packages mostly leading to upcoming new hydro-electric dam projects worth at least RM2b closed last year. We expect construction awards to pick up soon.

13th GE: Uncertainty in timing? On whether BN’s two-thirds victory can be a gauge for the next general elections (GE), PM Najib was quoted as saying that “it is a yes and a no”. “Yes, because we can maintain our momentum to win after the previous victories in various other by-elections held and it has inspired us,” but “No, because it is just a state election and does not reflect the situation of the country as a whole”. Our interpretation of the PM’s remark is that the probability of a snap General Election this year has lowered somewhat compared with prior to the Sarawak State Election when the by-elections were swinging in BN’s favour.